Zcash DeFi

Hi,

Before I formally apply for a grant, I’d like to share with you a trailer regarding a project that will enable Zcash holders to put their $ZEC to work.

Let me know if you are excited :slight_smile:

10 Likes

Applicant background

I’m a long time Zcash holder, on the zcap, active on the Telegram Zcash community (where I am a moderator) and reddit r/zec (where I am a mod).

Description of Opportunity

We have people asking what they can do with their Zec, and the only answer we can give them is “not much”.

There’s untapped opportunity to use DeFi markets for borrowing purposes and expand Zcash holders’ financial horizon and foster adoption.

Proposed Solution

The solution is to allocate liquidity from the Zcash chain to DeFi native chain Fantom (FTM) and to leverage high quality DeFi partners.

Fantom Opera (FTM) is a low fees top-tier EVM-compatible network, home of many innovative DeFi projects.

Thanks to Renlabs, we will mint 1:1 (minus fees) $renZec with $Zec and leverage DeFi partners Spookyswap and market.xyz.

Renlabs is the leading inter-blockchain protocol, known for their famous $renBTC token (RenVM: TVL and stats - DefiLlama)

Spookyswap is the leading DEX on Fantom blockchain (SpookySwap: TVL and stats - DefiLlama)

Market.xyz is the leading borrow market on FTM, enabling growing marketcap projects like Zcash to benefit from DeFi. (https://fantom.market.xyz/)

As you can see, all the infrastructure is already out there.

Solution Format

The solution utilizes a DeFi primitive called “LP” for Liquidity Pool.

All we need to do is to create a renZec/USDC LP with Spookyswap, and Market.xyz will enable $renZec holders to deposit their own assets and borrow stablecoin $MAI.

The MAI token is pegged to the US Dollar and can be used to purchase any assets available on FTM.

Here are 3 scenarios to explain the mechanisms of this project

Scenario 1 : liquidation

Bill has some $renZec and wants to borrow against it. Bill deposits 1 $renZec token to market.xyz $renZec pool. This is his collateral and $ZEC currently trades at $100 on Coinbase.

Now, Bill borrows $80 worth of $MAI stablecoin and do whatever he wants with his money.

2 days later, $ZEC trades at $80 on coinbase.

Market.xyz liquidation engine noticed the price drop and needs to sell Bill’s collateral to repay themselves with the $80 they lent to Bill.

Market.xyz’s routing engine knows there is a LP out there that accepts $renZec/$usdc transactions. Market.xyz will give Bill’s collateral to the LP and take $80 from the LP.

What happened to the LP ? The LP amount of $USDC decreased by 80, and the amount of $renZec increased by 1.

Scenario 2 : Zec goes to the moon

Zcash currently trades at $100 on coinbase. Barry is a Zcash bull and he owns 20 $renZec.

Barry thinks Zcash is going to gain in the coming days. Barry deposits his $renZec in the market.xyz smart contract, and borrows $1000 $MAI. Then, Barry buys 1000 $USDC with his 1000 $MAI.

With his loan, Barry decides to buy additional $renZec. Thanks to the LP, Barry is able to tap into this liquidy smoothly.

What happened to the LP ? The LP amount of $USDC grew by 1000, and the amount of $renZec dropped by 10.

Over the next few days, Zcash indeed gained 100%, and Barry wants to take some profits.

Barry taps again into the LP and exchanges 5 $renZec for 1000 $USDC. Barry then sells his $1000 USDC for 1000 $MAI and repays his loan.

What happened to the LP ? The LP amount of $USDC decreased by 1000, and the amount of $renZec increased by 5.

Scenario 3 : Zec goes to zero

This is an extreme and unlikely scenario that will help you understand the mechanics of an LP

Zec suffers a critical bug, and price is plummeting on Coinbase.

$renZec holders notice and decide to sell their $renZec to get some $USDC instead.

What happened to the LP ? The LP will have its amount of $USDC tokens decrease quickly to Zero and the amount of $renZec grow by a lot very fast.

The takeaway

I hope with these 3 scenarios I explained to you what an LP is and what its purpose is.

It is important to understand a LP with a deep liquidity pool is absolutely crucial to have a smooth experience in the DeFi world.

Without a deep LP, market.xyz wouldn’t be able to liquidate risky positions and their protocol would be unusable.

In DeFi terminology, a deep LP can be seen as a commitment and a strong signal that we want to grow Zcash’s usecases organically.

The address owning the LP always remain in control of the funds, although the amount of tokens within the LP fluctuates over time as DeFi users taps into it.

Recommended Technical approach

  • Sell half of the Zec for USDC, possibly on OTC

  • Bridge $Zec to FTM network with renbridge and obtain $renZec tokens

  • Bridge $USDC to FTM network

  • With assistance from Spookyswap, create renZec/USDC LP and get the $renZec token whitelisted

  • Market.xyz will open a $renZec pool and allow any users to deposit $renZec as collateral and enable a stablecoin $MAI borrow market

Important : We do need a middleman to move money around and create the LP, but once the LP is created it needs to be attached to an FTM address obviously. That FTM address can be controlled by me or by the “Zcash Community Grants” (ZCG) team if they accept to take custody of it. In order to minimize risk to ZCG, we recommend the ZCG team take ownership of the LP, however, we request commitment that ZCG won’t arbitrarily pull the LP as this would critically disrupt the whole project.

How big of a problem would it be to not solve this problem?

DeFi is an important part of cryptocurrencies and given Zcash’s bleeding edge technology, decentralized nature and marketcap, it is disappointing that there are not many opportunities for Zcash holders to take part into DeFi.

Execution risks

  • I do expect some KYC processes to slow down the delivery of the project.

  • Although it’s not required, we need to find an OTC desk to perform a large Zec/USDC transaction without affecting the general market

Unintended Consequences

  • Users need to be aware that a borrowing market involves financial risks (liquidation)…

  • … or smart-contracts risks (bugs)

Evaluation plan

Market.xyz provides live dashboard and statistics about the $renZec pool utilization.

An ideal scenario would be :

  • an increase of the number of addresses owning $renZec

  • more users contributing to growing the renZec/USDC LP

  • many users depositing $renZec and borrowing from it

Schedule and Milestones

The schedule is very straightforward, and is dependant of funding success or not. All the infrastructure already exists on FTM network.

The marketing part is not blocking any delivery by itself.

Budget

Main budget

We request $300k worth of $Zec to seed liquidity for the sole purpose of bootstrapping the ecosystem.

The deeper the liquidity, the better.

Per the Spookyswap team, the absolute minimum to get $renZec token whitelisted is $100k but it is considered low quality liquidity. Great liquidity is in the $1M.

Given the current state of DeFi w/ Zcash, we think $300k is a good compromise : it shows commitment while at the same time being modest; however, we are open to discussing this with the ZCG committee

Liquidity Incentive budget

To attract interest and liquidity outside of the liquidity provided by the ZCG, we want to incentivize token holders by offering rewards.

Subject to a governance vote from Spookyswap, we will reward $40,000 worth of $ZEC vested over 60 days for Spookyswap $xBoo stakers.

Additionally, Renlabs has the privilege to be a Solidly NFT owner, they kindly offer to incentivize Solidly’s renZEC/USDC pool by voting for it.

Marketing budget

We also recognize the need to explain to Zcash holders what is DeFi, how they can participate and grow the number of $renZec holders. As such, we believe some marketing materials will be very useful. We propose to fund someone with video editing skills to create some video tutorials and some screens for youtube and other social medias. If this project gets funded, this is a major step for our community and we need the world to know about it.

We request $5k to pay the content creator. It will involve all the steps required to participate in the market.xyz borrow market

  • Metamask installation

  • Acquiring $FTM token to perform some transactions

  • Bridging Zec with the renbridge

  • Depositing $renZec on market.xyz and borrow $MAI

  • Buy a random DeFi token on spookyswap with $MAI

  • Repay the loan

  • Bridging back $renZec to $ZEC

F.A.Q.

Q. Why FTM ?

A. FTM is home to some of the most popular & innovative DeFi products : Yearn.finance, CURVE, SUSHI etc… We believe that isolated markets are really powerful when they are accessible to people and due to the high gas fees on the Ethereum Mainnet, it becomes very hard to leverage the power of these markets and is not inclusive for many.

Bancor, a dApp running on Ethereum currently has less than $20k worth of renZec minted. This is not adoption. This is why we believe FTM offers great opportunity; however, we are open to other defi platforms as well…

Q. How’s the demand ?

A. Demand is difficult to gauge, but we regularly get feedback online (e.g. Telegram) that people want to “stake” Zec (e.g. put their Zec to work) or acquire Zec from a DEX. Historically, the Zcash asset itself has been in a downtrend for many years , but we believe it has bottomed out in USD value. In order to bring demand, we need to offer a product that is easy to understand, use and transact with. With the right amount of marketing to raise awareness, we deeply believe the time has come and we think we are aligned with the Zcash Community Grants’ mission to foster adoption. Similarly to @iamDCinvestor tweet below, we firmly believe the life-changing blockchain utility in 2022 is to be able to borrow against our ZEC.

Q. What about security of smart contracts ?

A. Smart contracts used in this project are audited by 3rd party (Audit Reports - Market) and/or are running bug-bounty program (Immunefi)

Some references

Finally, we would appreciate hearing community members’ opinions about this proposal. If you’re interested in borrowing/lending against your Zec please comment below and let us know more.

2 Likes

Hi @ZcashDeFi I love the idea on being able to do something with my Zcash. Instead of just sitting in a wallet doing absolutly nothing.

Ive followed the tutorial and now hold some renzec in my metamask on the FTM network. It was very easy to follow.

I think its an awesome idea!

On the 300k worth of Zec for liquidity, I dont see it as a too much, as the risk seem minimal, the LP can be recouped at any time. (tho if that would happen then the whole project collapses)

On the marketing point i think the 5k is too modest in fact. If this proposal were to get approved you would need a much more than just a video tutorial. Bringing Defi to Zcash is a fairly big deal it would need a whole marketing strategy and full educational resources and explainers in many formats and languages.

What do you guys think?

1 Like

Hi @ZcashDeFi ,

Thank you for your proposal. The @ZcashGrants Committee has voted to decline funding of this grant at this time.

1 Like